State’s High Court Blesses Minimum Increases for Low-rent Tenants

On March 24, 2011, the New York Court of Appeals, the highest court in the state of New York, issued its long-awaited ruling in Casado v. Markus, a closely watched case that has been working its way up through the state legal system since a Manhattan Supreme Court issued a pro-tenant decision in January 2010 followed by a corroborative ruling from the Appellate Division in June 2010.

In a lopsided 5-2 decision, the Court of Appeals overturned the decisions of the two lower courts invalidating the supplemental increases the Rent Guidelines Board approved in 2008 and 2009, under its Orders nos. 40 and 41, for tenants who have lived in their apartments for six years or more and whose rent was under $1,000.

The high court’s verdict is the last word in the matter — unless the losing party can find tenable constitutional grounds on which to mount an appeal, which would have go to a federal court. This scenario is highly unlikely, though. As a result, as is now reported on the RGB’s Web site, the minimum dollar increases adopted by the RGB in Orders nos. 40 and 41 are valid and in effect for leases and renewals covered by those orders.

Order no. 40 covers leases and renewals taking effect between October 1, 2008 and September 30, 2009. Order no. 40 imposes a minimum increase of 4.5% or $45, whichever is greater for a one-year lease (4% or $40, whichever is greater, where the tenant pays for heat) or 8.5% or $85, whichever is greater, for a two-year lease (8% or $80, which ever is greater, where the tenant pays for heat).

Order no. 41 applies to leases and reneweals taking effect between October 1, 2009 and September 30, 2010. Order no. 41 establishes a minimum increase of 3.0% or $30, whichever is greater for a one-year lease (2.5% or $25, whichever is greater, where the tenant pays for heat) or 6.0% or $60, whichever is greater, for a two-year lease (5% or $50, whichever is greater, where the tenant pays for heat).

The hundreds of thousands of tenants affected by the two Orders must pay the applicable minimum increase in addition to the maximum increase set by the RGB — or face non-payment proceedings. In some cases, the additional charge would raise rents above the maximum increases — 4.5% and 8.5% for one and two-year leases, respectively, under Order No. 40; 3.0% and 6.0% for one and two-year leases, respectively, under Order no. 41 — by up to as much as 12%(!). This compounded rent hike is why opponents of the minimum increases, such as the City Council and advocacy groups such as the Met Council, Tenants & Neighbors, and Cooper Square Committee, condemned the minimum increases as a tax on the poor.

Siding with the RGB and, by extension, landlords and Mayor Bloomberg, Judge Smith, in his majority opinion, wrote, among other things:

“The RGB’s purpose in taking this approach was to remedy what it saw as an inequity. …Where the rent is relatively small and there is no vacancy for many years, the disproportion can become acute, with small annually-authorized increases that do not come close to covering increased costs. Those costs have to be paid somehow, so if percentage increases are uniform, the increases must be set at a level that allows landlords to make larger profits on the apartments that get larger increases, and to use those profits to pay the costs for the lower-rent apartments. In other words, tenants paying higher rents must subsidize those paying lower rents.

“Perhaps that subsidy could be justified on the ground that tenants paying higher rents are generally wealthier. An analysis by the RGB staff, however, showed that the subsidy appears to be unfair even when tenant incomes is taken into account. The analysis (which excluded senior citizens receiving rent increase exemptions) showed that the median rent-to-income ratio for tenants living in their apartments six years or more was lower than the same ratio for all tenants — and would continue to be lower even if minimum increases in the range at issue were imposed. The RGB therefore decided to adopt the minimums….”

…Subsidy?

Writing for the minority dissent, Judge Jones wrote in his opinion:

“…I note under the majority’s reasoning there is no limit to the amount that the Board can increase rents at the lowest end of the rent-stabilized spectrum for the purpose of evenly distributing maintenance costs that in many buildings are shared by long-term, newer, and market-rate tenants. To me, it is obvious that such equalization is anathema to the purpose of the rent stabilization law, and therefore beyond the Board’s authority.”

The next round in Albany — renewal of the rent-stabilization laws–will hopefully go to the tenants.